Australia: Part III: Bitcoins 101: Tax implications

The ATO holds the view that bitcoins are neither money nor foreign currency, and the supply of bitcoins will not attract GST. However, bitcoins are an asset for CGT purposes. In effect, paying for goods and services by bitcoin will be regarded by the ATO as a barter transaction. This treatment is broadly similar to the treatment overseas, with the UK and US both treating bitcoins as property for taxation purposes.

International developments

As noted above, many countries have determined that bitcoins are to be treated as property, not currency, for the purposes of taxation laws. But there are some significant differences in how the product is regulated around the globe. China has prohibited financial institutions and payment companies from handling bitcoin, but individuals are able to hold and trade them. The EU does not have a unified position but Germany has recognised a bitcoin as a 'unit of account' (which means that it is a financial instrument and can be used as a settlement currency). Similarly to the UK, profits on trading bitcoins are taxed.

In January 2015, Coinbase in the U.S. launched the first licenced U.S. bitcoin exchange. This is a move away from unregulated online exchanges that are more vulnerable to collapse (such as Mt Gox) and towards making bitcoin a more regulated, conventional financial instrument.

The future of digital currencies in Australia

ASIC has suggested that the law could be altered to accommodate digital currencies, for example by treating the digital currencies in the same manner as national currencies or by declaring digital currencies to be 'financial products'. We anticipate that bitcoins will have to be re-evaluated by regulators in the future if they continue to gain in popularity. If bitcoins become a ubiquitous medium of exchange, then there may be a greater push to regulate them in a similar way to foreign currency. If this occurs, then most dealings relating to bitcoins may need to be licensed.

As bitcoin increases in visibility and volume, the trend will be to increase regulation and oversight of the platform and to ensure that it does not cause leakage of tax revenues. In doing so, bitcoin may lose connection with its libertarian, anonymous roots. The tensions between these two opposing visions for crypto-currencies will bear watching.

WHY REGISTER WITH SAIT?

Section 240A of the Tax Administration Act, 2011 (as amended) requires that all tax practitioners register with a recognized controlling body before 1 July 2013. It is a criminal offense to not register with both a recognized controlling body and SARS.